Mexico’s Maquiladora Program: 6 Things to Know Before Setting Up05.22.18
Maquiladoras started in Mexico in the 1960s. Originally, the program, set up by the Mexican government, was meant to attract foreign companies to set up their manufacturing in Mexico, thus boosting Mexico’s own economy. To attract foreign businesses, the maquiladora program offered tax benefits on imported goods and equipment that were used for their manufacturing processes.
After NAFTA was passed in 1994, the number of maquiladoras skyrocketed. There are currently 5,089 maquiladoras employing 2,882,761 Mexican workers, and 80% of Mexico’s exports go to the US.
In 2006, the Mexican government made some changes to the program and it’s now officially called IMMEX, but maquiladora is still commonly used. Foreign companies operating through the IMMEX program get to take advantage of Mexico’s lower labor costs and receive tax benefits, but in exchange, they must comply with many strict and often complicated regulations.
For many companies, the benefits of manufacturing in Mexico through the IMMEX program far outweigh the costs, but there are several things businesses should know before setting up their manufacturing operations.
1. Your imports and exports aren’t completely duty-free
Many of our clients come to us thinking that operating under an IMMEX/Maquiladora license means they’ll be able to import goods duty-free. The maquiladora program does grant preferential tax breaks, but it doesn’t automatically mean anything you import will be duty-free.
Before moving your manufacturing operations to Mexico, it’s important to complete a duty-impact analysis—a good shelter provider will do this for you. With our clients, we review all the goods and equipment they intend to import and determine whether or not duties will be applied. For items that will be subject to duties, we can often leverage other mechanisms to eliminate or lower those costs.
2. Are your imports considered sensitive materials?
Mexico considers certain raw materials—mainly steel, aluminum, and textiles—sensitive materials because they already have robust manufacturing industries in Mexico. Importing these materials comes with an extra set of strict regulations.
3. Differences between a shared and dedicated shelter entity
Operating under a shared shelter entity means you will share an IMMEX license with other companies. It won’t affect your operations in any way. You can also choose to have a dedicated license that is just for your company.
One of the main benefits of operating under a shared license is that your shelter provider will already have certifications in place that will grant you tax benefits. For example, regulations changed in 2015 that made all temporary imports—the raw materials that companies use in their manufacturing—subject to 16% VAT. After lobbying from maquiladora associations, the Mexican government created a certification that deferred that tax for companies that were deemed “trustworthy.” IVEMSA’s current IMMEX licenses all have this certification, so if you start manufacturing under a shared shelter license, it will cover your imports. But if you start with a dedicated shelter, you’ll have to go through a 12-month process to get certified if you’re importing steel, aluminum, or textiles. If you’re not importing those sensitives goods, the certification process takes four months.
4. Location options for your facility
When operating under the IMMEX program, technically, you can set up your manufacturing operations anywhere in Mexico. However, the vast majority of maquiladora operations are in the country’s border regions. These areas typically have the infrastructure to support manufacturing already established and are, of course, conveniently close to the border, so transportation is simpler.
Other factors to consider when selecting a location for your facility are the availability and skills of the local workforce (if you’ll need skilled technicians or engineers, you may want your facility to be near universities or trade schools) and where other companies in your industry are located. For years, the automotive industry in Mexico has been concentrated in central Mexico. This region has robust infrastructure and supply chains to support that industry.
5. It pays to work with experts
We often see companies come to Mexico and try to make it work without hiring a dedicated trade compliance expert or experienced HR staff. For smaller companies, it can be tough to justify these costs if they’re operating on their own—until they run into an issue because they didn’t understand certain import/export regulations or Mexican labor laws.
By working with a shelter provider, you’ll get to take advantage of their expertise in trade compliance, HR, taxes and accounting, and more for a fraction of the cost. In the long run, most companies save even more money with shelter providers because they avoid fines or costly delays getting permits or certifications.
6. Don’t be concerned about corruption
Thanks to automated systems at border checkpoints, corruption has largely been eliminated. In most cases, there’s very limited in-person interaction with customs personnel and the systems in place work well at preventing corrupt activity. Our clients find that their day-to-day operations aren’t impacted by corruption.
When setting up operations under an IMMEX/Maquiladora license, knowing the facts and what to expect make the process much easier. If you’re interested in learning more about moving manufacturing to Mexico, contact us today.